In an interview, Shailesh Chaturvedi, chief executive officer (CEO), Arvind Fashions, said they got a fair deal on the sale of its value-fashion retail chain Unlimited to retailer V-Mart Retail
NEW DELHI :
Last month, Arvind Lifestyle Brands Limited (ALBL), a wholly owned subsidiary of Arvind Fashions Ltd (AFL), said it has signed a definitive agreement to sell its value-fashion retail chain Unlimited to retailer V-Mart Retail Ltd, for an estimated ₹150 crore in an all-cash transaction. In an interview, Shailesh Chaturvedi, chief executive officer (CEO), Arvind Fashions, said they got a fair deal for Unlimited and plan to focus on growing ‘high conviction’ brands—US Polo Assn., Tommy Hilfiger, Calvin Klein, Arrow, Flying Machine and Sephora. Edited excerpts:
The trigger is our strategy of focusing on six high conviction brands. We believe, for our strategy of profitable growth, those six brands are the focus areas. In that context other things become less important. We realized that Unlimited needed to be in a place where it's a priority for that place. So, in the last two years had a new team and they did a fantastic job of bringing it close to breakeven to be interesting for a future owner. Then we found somebody who we believe is the ideal partner for the future of Unlimited. The strategy is therefore of focusing our entire effort—be it capital, talent or resources—behind these six brands.
The future of Unlimited would be better with somebody like V-Mart who is an expert in the value segment. We believe we got a very fair deal where we are recovering the entire book value for the assets of Unlimited, and we are transferring the 74 physical stores, largely in South of India, little bit in West also. We want to deploy that capital in our six brands.
With the pandemic hitting incomes, doesn’t the value segment offer better opportunity?
We thought through very hard, and we figured our core competency is a very enviable portfolio of six brands. Most of our brands have a relaxed, casual feel so they're perfect for post-covid, work-from-home, relaxed wear scenario. In July and August our brands are recovering very strongly because our portfolio is ideal for work from home.
Could you elaborate on recovery? How badly were they hit?
Covid wave two was very strong and very bad. Any covid-induced lockdown of stores and, in many ways, even online, is bad for business because retail gets impacted. But one thing that helped was that we had a playbook. We had done things last year, so we had some sort of muscle memory built on how to manage costs and cash flows. We had a Rights Issue money coming in in May that also helped.
Covid was bad, but we delivered 50% net sales value (NSV) in Q1 this year, compared to Q1 of 2019-20 or pre-covid time. So, our recovery was 50%.
But compared to last year, our business became four times in the first quarter. A large amount of that growth came from our power brands, and also from digital. So compared to the first quarter of last fiscal, this quarter (revenue) grew by ₹250 crore. And out of that ₹250 crore increase in revenue, ₹150 crore came from digital.
July was much better, when more malls started, our recovery at a company level was close to 80%, and in power brands it was 90%. And August is a further increase in our recovery, many brands have now crossed the pre-covid August’19 numbers.
I wish Maharashtra malls were open, because in some of our brands it's a very significant portion. The vaccination rules are very difficult. Our staff is very young, and government said that staff with two vaccine shots will be allowed to resume work at malls. These are all youngsters, in early 20s, most of them only have got one jab. But other than Maharashtra overall recovery everywhere has been fantastic.
Arrow is your formal wear brand. Will you extend that into athleisure?
Casualization in India had started a decade back and not just in the covid times. In covid, casualization has only accelerated.
A decade back we had started looking at a relaxed line in Arrow. So there is a line called Arrow Sport, which is a smart-casual, semi-formal line, and it has now become almost half of the Arrow business.
One thing I always say is that while we all live in big metros, India lives in its 200 towns. And a typical customer, in a city like Indore, may be just wearing a casual check shirt and a chino to work every day, or jeans maybe. That’s the reality of India. And all the brands always adapt to changing consumer habits. We have evolved Arrow and it now has three lines—one is the original Arrow formal line, Arrow Sport and now we also have a line for young professionals Arrow New York.
When you spoke about digital becoming big—how much is it via your site NNNOW.com and how much via marketplaces?
There are two parts of digital business, and it's growing really well. In Q1FY22 we did close to ₹200 crore revenue. We are at a pace where we are close to ₹1,000 crore run rate. Arvind Fashion is the market leader in our industry in the digital business by far.
Of this Rs200 crore—30% of that business is coming from what is known as our direct-to-consumer that includes the NNNow business (website directly done by us). And then there are the marketplaces. So, on marketplaces also we control the entire consumer experience, we manage the assortment, pricing, catalogue, everything and it is sold through portals like Myntra, Ajio, Amazon, and Flipkart etc.
If the focus is online, are you scaling back on expanding physical stores?
If you ask me how we are going to grow these six high conviction brands, you will get answer to your question.
There are a couple of themes and strategies we have. But first is digitalization that I discussed—the partnership with portals, omni connect with our consumers.
In the last quarter, we added 100 more stores to our omni network and our contribution of digital only linkages in our physical store during the quarter one, reached mid teen number.
Then we have backend capabilities built on warehouses, on product assortment, exclusive online products.
Second strategy for us has been to develop adjacent categories in these brands. Take our biggest, most powerful brand US Polo. In last many years we have built kidswear, footwear, innerwear…in US Polo.
Similarly, in Arrow, suit and blazer is a big focus…may be we do small leather goods like belt and wallets in Arrow.
Third is the offline channel now. I think this will address your question. The special thing about India is that you can't ignore the energy and the business in the small-towns – tier 2 and 3.
And even in the online tracking if you see, the contribution of tier two, three is growing very, very rapidly. We are now opening physical stores in these small towns of India at an accelerated pace. And they will not be the typical offline stores of the past, these will be all omni-enabled digital footprints for our brands.
Could you name some of these cities and the percentage of business coming from small towns?
Traditionally, AFL brands have an urban bias, it's a big city business. We have Calvin Klein in the bridge-to-luxury segment, US Polo, Arrow which is our premium category. We only have Flying Machine as value brand.
I can tell you that large contribution (of business) was coming from the top 30 cities.
But now we have seen traction for our brands in smaller towns online. We have the data now to feel comfortable about starting to expand stores.
Apparel retailers like Aditya Birla Fashion and Reliance Brands have bought into Indian designer labels. Does Arvind have similar plans?
I respect competition so I'm sure they would have thought through their strategy and their game plan. So good luck to them.
As far as AFL is concerned, we want to be absolutely laser sharp focus on the six high conviction brands in the short term. Long term, we'll see how the industry plays out and how AFL plays out, but in the short run we have no intent to do anything other than revitalising the growth of these six high conviction brands.
Flipkart invested in Flying Machine. Will there be more associations like that with any other marketplace for any other brand?
Currently, I am not aware of plan but, you know, if there is something we will let you know.
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